Cash in Hand, AMD Targets Intel

With Advanced Micro Devices on thin ice with severe pressure from chip rival Intel and four consecutive quarterly net losses, the cash infusion by an Abu Dhabi government investment arm could help the struggling chip maker remain competitive.

Mubadala Development Company, in Abu Dhabi, United Arab Emirates, paid US$622 million to acquire an 8.1 percent stake in AMD on Friday. Mubadala Development is owned by the Abu Dhabi government.

AMD will invest the money in a long-term strategy for research and development, products and manufacturing, said Drew Prairie, a spokesman for AMD. The money may be used toward the development of "Fusion," which will integrate a GPU (graphics processing unit) and CPU on a single die. Fusion is expected to be delivered by late 2008 or early 2009.

The deal should help AMD be competitive with Intel by providing the cash to develop new chip technologies, said Richard Doherty, research director at The Envisioneering Group. AMD needed the money to invest in fabs, research and development, and talent to develop new chip architectures, he said.

AMD is currently developing processors at 65 nanometers and losing processor market share to Intel, which this week released the power-efficient 45-nanometer Penryn chip. Intel is also investing heavily to open new fabs to manufacture 45-nm chips, so AMD needs to invest in R&D and quickly develop its future chip architectures to keep up with Intel, Doherty said.

Doug Freedman, an analyst with American Technology Research, agreed. "The 65-nm node has not been smooth sailing for the company. Investors are more focused on the 45-nm node," Freedman said.

AMD next week is expected to launch the "Spider" platform, which includes the next-generation 65-nm quad-core Phenom processor that will better support graphics cards to deliver high-quality graphics to PCs. In a financial earnings call last month, AMD said it would jump to the 45-nm chip manufacturing process by mid-2008.

"If AMD can keep its innovation gear train moving, they can give Intel a good run for its money," Doherty said. He has high hopes for AMD's ability to continue to be competitive. Demand for PCs should remain high and there will be space for all three x86 competitors -- Intel, AMD and Via -- to operate in the market, he said.

The investment also has analysts speculating that AMD could build a fab in the Middle East in the next five years, Doherty said. AMD competitor Intel has a presence in the Middle East, with a chip plant in Israel.

In addition, because Mubadala invests in education, the AMD deal could ultimately empower technology education in the Middle East, Freedman and others said.

Mubadala's investment in AMD is independent and not related to any specific initiative, said Richard Mintz, a Mubadala spokesman in Washington, D.C.

Mubadala will remain independent of AMD's operations and didn't ask for a spot on the company's board, Mintz said. Mubadala felt AMD's management team was strong and acquiring a minority stake would result in a long-term return, he said.

Mubadala, which invests in a wide variety of industries, could be looking at gaining relationships in the technology industry, Freedman said. The investment in AMD is consistent with Mubadala's strategy as a long-term investor, he said.

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